Washington Commissioner Wants Credit Scoring Studied

The Washington Legislature is going to look at credit scoring as an item that impacts rating factors. It’s Senate Bill 5589 and is proposed by Washington Insurance Commissioner Patty Kuderer and Seattle Democrat Sen. Bob Hasegawa.

The bill’s introduction is not a surprise since her predecessor, Mike Kreidler tried to ban credit scoring a couple of years ago but was stopped by when the PIA stepped forward and protested. Your association led a coalition that filed a lawsuit and Kreidler’s push was derailed.

If Senate Bill 5589 passes, it will require Kuderer and her department to look at how insurance companies use credit history, credit-based scoring and other ratings factors, and how they could have a negative impact on the people of the state.

Translation? Kuderer, like her predecessor, Mike Kreidler, says credit scoring and history has a huge, and negative, impact on African Americans, Latinos, the poor of the state and on people living in certain areas of cities and the state.

PIA Western Alliance Executive Vice President Kim Legato said this is a subject that has been studied for years. The conclusions are always the same. Credit scoring is a positive for the people of any state, and credit scoring keeps rates down.

“The PIA believes that risk classification is an important priority in property and casualty insurance,” Legato said. “But politicians continue to be bring it up again and again, and the conclusions are always the same. Credit scoring is a positive for the people of Washington State and not a negative. It creates a healthy insurance climate, and we believe a healthy insurance climate means a healthy insurance agency, and when companies do well, agencies do well.”

Executive Director and General Counsel for Washington Self Insurers Association (WSIA) Kris Tefft is working with the PIA Washington on this and other issues. He agrees and points out the study is traveling territory that’s been done many times before.

“Few topics in property and casualty insurance have been studied more extensively over the last two decades than the use of credit-based insurance scores in pricing risk for auto insurance and whether it's a state regulator, independent think tank, or university that has done the studies, the results are always the same,” Tefft said. “It is a non-discriminatory tool to set rates and keep insurance available at lower cost to the consumer.”

He also pointed out that without credit scoring, premium costs will rise.

“In Washington, we even had a live study during the brief time between the former Commissioner's emergency rule and its invalidation by a court, and the results were also clear — while credit history was banned as a rating factor, premiums shot up and consumers across the state suffered,” Tefft noted. “If this bill goes forward, I hope that it will take into account the dozen existing studies on this topic that have been done, not tie up insurers with burdensome new data requests, and engage the expertise of unbiased outside researchers to assist in the report.”

Will it? In the bill’s language, Kuderer and Hasegawa want the study to include alternatives to credit scoring in setting rates.

“Insurers are relying more and more on algorithms and big data to determine someone’s premium and if they will even insure someone,” Kuderer said. “They claim it helps them predict who will file a claim and that may be true. But as the regulator, it’s my duty to ensure that insurers’ behavior is not discriminatory. Until we have concrete data from the Washington state market, we won’t be certain.”

Legato said the way the insurance industry operates is not discriminatory.

“Factors other than credit scoring go into evaluating rates,” Legato said. “Insurance companies cannot legally penalize someone for a bad score by raising premiums, denying coverage or canceling a policy. However, credit scoring does give an insurer the best, and most fair assessment of the risk of a driver.”

If this bill passes, a preliminary report has to be delivered to the Legislature by December 31st of this year.

Source link: Washington Department of Insurance — https://bit.ly/4ianWMy